Starbucks Announces Strong Third Quarter Fiscal 2005 Results
Revenues Up 21 Percent; Net Earnings and EPS Both Increase By 29 Percent; Company Sets Fiscal 2006 Growth Targets Including 1,800 New Retail Stores
Starbucks Corporation (NASDAQ:SBUX) announced revenues and earnings for its fiscal third quarter ended July 3, 2005.
For the 13 weeks ended July 3, 2005, consolidated net revenues increased 21 percent to $1.6 billion from $1.3 billion for the same period in fiscal 2004. Net earnings for the 13 weeks ended July 3, 2005, increased 29 percent to $126 million from $98 million for the same period in fiscal 2004. Earnings were $0.31 per share for the 13 weeks ended July 3, 2005, compared to $0.24 per share for the comparable period in fiscal 2004.
"We are very pleased with the strength of both U.S. and International operations -- reflected in our solid third-quarter revenue results and the expansion of our operating margin during the quarter," commented Jim Donald, Starbucks president and ceo. "We remain committed to building shareholder value by executing our strategy and realizing the tremendous growth opportunities available to Starbucks on a global basis. Our strong performance year-to-date positions us well to achieve our fiscal 2005 goals -- and gives us confidence in the aggressive store growth targets we have established for fiscal 2006."
Consolidated Financial and Operating Summary
Company-operated retail revenues increased 22 percent to $1.4 billion for the 13 weeks ended July 3, 2005, from $1.1 billion for the same period in fiscal 2004. The increase was primarily attributable to the opening of 713 new Company-operated retail stores in the last 12 months and comparable store sales growth of seven percent for the quarter. The increase in comparable store sales was due to a four percent increase in the average value per transaction and a three percent increase in the number of customer transactions.
Specialty revenues increased 16 percent to $245 million for the 13 weeks ended July 3, 2005, compared to $211 million for the corresponding period of fiscal 2004. Licensing revenues increased 17 percent to $170 million, primarily due to higher product sales and royalty revenues from the opening of 839 new licensed retail stores in the last 12 months. Foodservice and other revenues increased 14 percent to $75 million, primarily due to growth in new and existing U.S. and International foodservice accounts.
Cost of sales and related occupancy costs decreased to 40.6 percent of total net revenues for the 13 weeks ended July 3, 2005, compared to 41.0 percent for the corresponding period of fiscal 2004. The decrease is primarily due to higher average revenue per retail transaction, offset in part by higher average rent expense in International markets. Dairy costs were moderately lower for the 13 weeks ended July 3, 2005, compared to the same period in fiscal 2004.
Store operating expenses as a percentage of Company-operated retail revenues decreased to 40.2 percent for the 13 weeks ended July 3, 2005, compared to 40.4 percent for the corresponding period of fiscal 2004, primarily due to higher average revenue per retail transaction, partially offset by higher payroll expenditures. In order to facilitate ongoing, accelerated retail store growth, the Company has been increasing the number of assistant store managers and opening a higher number of drive-thru locations over the past year, which has contributed to the higher payroll expenditures.
Other operating expenses (expenses associated with the Company's specialty operations) decreased to 19.8 percent of total specialty revenues for the 13 weeks ended July 3, 2005, compared to 21.0 percent for the corresponding period of fiscal 2004. The decrease was primarily due to lower expenditures within the grocery and warehouse club channels, partially offset by higher costs associated with expanding emerging specialty businesses, such as music and consumer products.
Depreciation and amortization expenses increased to $85 million for the 13 weeks ended July 3, 2005, compared to $73 million for the corresponding period of fiscal 2004. The increase was primarily due to the opening of 713 new Company-operated retail stores in the last 12 months. As a percentage of total net revenues, depreciation and amortization expenses decreased to 5.3 percent for the 13 weeks ended July 3, 2005, from 5.5 percent for the corresponding 13-week period of fiscal 2004.
General and administrative expenses increased to $91 million for the 13 weeks ended July 3, 2005, compared to $73 million for the corresponding period of fiscal 2004. The increase was primarily due to higher provisions for incentive compensation and increased charitable commitments. As a percentage of total net revenues, general and administrative expenses increased to 5.7 percent for the 13 weeks ended July 3, 2005, from 5.6 percent for the corresponding period of fiscal 2004.
Income from equity investees increased to $18 million for the 13 weeks ended July 3, 2005, compared to $13 million for the corresponding period of fiscal 2004. The increase was primarily due to volume-driven operating results for the North American Coffee Partnership, which produces bottled Frappuccino(R) coffee drinks and Starbucks DoubleShot(R) espresso drink, and improved operating results from international investees, particularly in Korea and Japan.
Operating income increased 30 percent to $200 million for the 13 weeks ended July 3, 2005, compared to $153 million for the corresponding 13-week period of fiscal 2004. As a result of lower store and other operating expenses as a percentage of related revenues, operating margin increased to 12.5 percent of total net revenues for the 13 weeks ended July 3, 2005, compared to 11.6 percent for the corresponding period of fiscal 2004.
Net earnings for the 13 weeks ended July 3, 2005, increased 29 percent to $126 million from $98 million for the same period in fiscal 2004. Earnings were $0.31 per share for the 13 weeks ended July 3, 2005, compared to $0.24 per share for the comparable period in fiscal 2004.
Fiscal 2005 Targets
The Company also provided updated fiscal 2005 targets:
-- Starbucks continues to plan to open approximately 1,500 new stores on a global basis in fiscal 2005. In the United States, Starbucks plans to open approximately 550 Company-operated locations and 525 licensed locations. In International markets, Starbucks plans to open approximately 100 Company-operated stores and 325 licensed stores;
-- The Company targets total net revenue growth of approximately 20 percent for fiscal 2005. As a reminder, fiscal year 2004 included an extra week of operations in the fourth quarter and, as a result, total reported net revenue growth for fourth quarter 2005 will be lower than 20 percent. Starbucks expects comparable store sales growth to be at the high end of its three percent to seven percent target range for the remainder of fiscal 2005, with monthly anomalies;
-- The Company continues to target earnings per share of $0.29 to $0.30 for the fiscal fourth quarter and, based on its strong third quarter performance, along with its current outlook for the fourth quarter of 2005, Starbucks is raising its full year earnings per share target range to $1.19 to $1.20 for fiscal 2005, from its previous target range of $1.17 to $1.19. Both the new and previous target ranges exclude any impact from expensing stock options. Excluding the $0.03 per share impact of the 53rd week in fiscal 2004, Starbucks new fiscal 2005 target range represents 29 percent to 30 percent growth over $0.92 earnings per share in fiscal 2004;
-- Consistent with the actual effective tax rate for the third quarter, the Company is now targeting a fourth quarter effective tax rate of approximately 38 percent, and;
-- Starbucks now projects capital expenditures to be at the low end of its original fiscal 2005 target range of $600 million to $650 million.
Fiscal 2006 Targets
Looking ahead, Starbucks introduced the following fiscal 2006 targets:
-- The Company is accelerating its store development plans and expects to open approximately 1,800 new stores on a global basis in fiscal 2006, an increase of 300 stores compared to the current fiscal 2005 target. In the United States, Starbucks plans to open approximately 700 Company-operated locations and 600 licensed locations. In International markets, Starbucks plans to open approximately 150 Company-operated stores and 350 licensed stores;
-- Starbucks is targeting total net revenue growth of approximately 20 percent. The Company expects comparable store sales growth in the range of three percent to seven percent, with monthly anomalies in fiscal 2006;
-- Excluding any impact from expensing stock options, Starbucks is targeting earnings per share of $1.44 to $1.47 for fiscal 2006, consistent with the Company's previously stated goal for longer-term earnings per share growth in the range of 20 percent to 25 percent;
-- The Company is targeting an effective tax rate of approximately 38 percent, with quarterly variations, and;
-- Capital expenditures are expected to be in the range of $700 million to $725 million in fiscal 2006.
For the 13 weeks ended July 3, 2005, consolidated net revenues increased 21 percent to $1.6 billion from $1.3 billion for the same period in fiscal 2004. Net earnings for the 13 weeks ended July 3, 2005, increased 29 percent to $126 million from $98 million for the same period in fiscal 2004. Earnings were $0.31 per share for the 13 weeks ended July 3, 2005, compared to $0.24 per share for the comparable period in fiscal 2004.
"We are very pleased with the strength of both U.S. and International operations -- reflected in our solid third-quarter revenue results and the expansion of our operating margin during the quarter," commented Jim Donald, Starbucks president and ceo. "We remain committed to building shareholder value by executing our strategy and realizing the tremendous growth opportunities available to Starbucks on a global basis. Our strong performance year-to-date positions us well to achieve our fiscal 2005 goals -- and gives us confidence in the aggressive store growth targets we have established for fiscal 2006."
Consolidated Financial and Operating Summary
Company-operated retail revenues increased 22 percent to $1.4 billion for the 13 weeks ended July 3, 2005, from $1.1 billion for the same period in fiscal 2004. The increase was primarily attributable to the opening of 713 new Company-operated retail stores in the last 12 months and comparable store sales growth of seven percent for the quarter. The increase in comparable store sales was due to a four percent increase in the average value per transaction and a three percent increase in the number of customer transactions.
Specialty revenues increased 16 percent to $245 million for the 13 weeks ended July 3, 2005, compared to $211 million for the corresponding period of fiscal 2004. Licensing revenues increased 17 percent to $170 million, primarily due to higher product sales and royalty revenues from the opening of 839 new licensed retail stores in the last 12 months. Foodservice and other revenues increased 14 percent to $75 million, primarily due to growth in new and existing U.S. and International foodservice accounts.
Cost of sales and related occupancy costs decreased to 40.6 percent of total net revenues for the 13 weeks ended July 3, 2005, compared to 41.0 percent for the corresponding period of fiscal 2004. The decrease is primarily due to higher average revenue per retail transaction, offset in part by higher average rent expense in International markets. Dairy costs were moderately lower for the 13 weeks ended July 3, 2005, compared to the same period in fiscal 2004.
Store operating expenses as a percentage of Company-operated retail revenues decreased to 40.2 percent for the 13 weeks ended July 3, 2005, compared to 40.4 percent for the corresponding period of fiscal 2004, primarily due to higher average revenue per retail transaction, partially offset by higher payroll expenditures. In order to facilitate ongoing, accelerated retail store growth, the Company has been increasing the number of assistant store managers and opening a higher number of drive-thru locations over the past year, which has contributed to the higher payroll expenditures.
Other operating expenses (expenses associated with the Company's specialty operations) decreased to 19.8 percent of total specialty revenues for the 13 weeks ended July 3, 2005, compared to 21.0 percent for the corresponding period of fiscal 2004. The decrease was primarily due to lower expenditures within the grocery and warehouse club channels, partially offset by higher costs associated with expanding emerging specialty businesses, such as music and consumer products.
Depreciation and amortization expenses increased to $85 million for the 13 weeks ended July 3, 2005, compared to $73 million for the corresponding period of fiscal 2004. The increase was primarily due to the opening of 713 new Company-operated retail stores in the last 12 months. As a percentage of total net revenues, depreciation and amortization expenses decreased to 5.3 percent for the 13 weeks ended July 3, 2005, from 5.5 percent for the corresponding 13-week period of fiscal 2004.
General and administrative expenses increased to $91 million for the 13 weeks ended July 3, 2005, compared to $73 million for the corresponding period of fiscal 2004. The increase was primarily due to higher provisions for incentive compensation and increased charitable commitments. As a percentage of total net revenues, general and administrative expenses increased to 5.7 percent for the 13 weeks ended July 3, 2005, from 5.6 percent for the corresponding period of fiscal 2004.
Income from equity investees increased to $18 million for the 13 weeks ended July 3, 2005, compared to $13 million for the corresponding period of fiscal 2004. The increase was primarily due to volume-driven operating results for the North American Coffee Partnership, which produces bottled Frappuccino(R) coffee drinks and Starbucks DoubleShot(R) espresso drink, and improved operating results from international investees, particularly in Korea and Japan.
Operating income increased 30 percent to $200 million for the 13 weeks ended July 3, 2005, compared to $153 million for the corresponding 13-week period of fiscal 2004. As a result of lower store and other operating expenses as a percentage of related revenues, operating margin increased to 12.5 percent of total net revenues for the 13 weeks ended July 3, 2005, compared to 11.6 percent for the corresponding period of fiscal 2004.
Net earnings for the 13 weeks ended July 3, 2005, increased 29 percent to $126 million from $98 million for the same period in fiscal 2004. Earnings were $0.31 per share for the 13 weeks ended July 3, 2005, compared to $0.24 per share for the comparable period in fiscal 2004.
Fiscal 2005 Targets
The Company also provided updated fiscal 2005 targets:
-- Starbucks continues to plan to open approximately 1,500 new stores on a global basis in fiscal 2005. In the United States, Starbucks plans to open approximately 550 Company-operated locations and 525 licensed locations. In International markets, Starbucks plans to open approximately 100 Company-operated stores and 325 licensed stores;
-- The Company targets total net revenue growth of approximately 20 percent for fiscal 2005. As a reminder, fiscal year 2004 included an extra week of operations in the fourth quarter and, as a result, total reported net revenue growth for fourth quarter 2005 will be lower than 20 percent. Starbucks expects comparable store sales growth to be at the high end of its three percent to seven percent target range for the remainder of fiscal 2005, with monthly anomalies;
-- The Company continues to target earnings per share of $0.29 to $0.30 for the fiscal fourth quarter and, based on its strong third quarter performance, along with its current outlook for the fourth quarter of 2005, Starbucks is raising its full year earnings per share target range to $1.19 to $1.20 for fiscal 2005, from its previous target range of $1.17 to $1.19. Both the new and previous target ranges exclude any impact from expensing stock options. Excluding the $0.03 per share impact of the 53rd week in fiscal 2004, Starbucks new fiscal 2005 target range represents 29 percent to 30 percent growth over $0.92 earnings per share in fiscal 2004;
-- Consistent with the actual effective tax rate for the third quarter, the Company is now targeting a fourth quarter effective tax rate of approximately 38 percent, and;
-- Starbucks now projects capital expenditures to be at the low end of its original fiscal 2005 target range of $600 million to $650 million.
Fiscal 2006 Targets
Looking ahead, Starbucks introduced the following fiscal 2006 targets:
-- The Company is accelerating its store development plans and expects to open approximately 1,800 new stores on a global basis in fiscal 2006, an increase of 300 stores compared to the current fiscal 2005 target. In the United States, Starbucks plans to open approximately 700 Company-operated locations and 600 licensed locations. In International markets, Starbucks plans to open approximately 150 Company-operated stores and 350 licensed stores;
-- Starbucks is targeting total net revenue growth of approximately 20 percent. The Company expects comparable store sales growth in the range of three percent to seven percent, with monthly anomalies in fiscal 2006;
-- Excluding any impact from expensing stock options, Starbucks is targeting earnings per share of $1.44 to $1.47 for fiscal 2006, consistent with the Company's previously stated goal for longer-term earnings per share growth in the range of 20 percent to 25 percent;
-- The Company is targeting an effective tax rate of approximately 38 percent, with quarterly variations, and;
-- Capital expenditures are expected to be in the range of $700 million to $725 million in fiscal 2006.
